Morocco: house prices are now falling, demand is static
January 20, 2017
During the year to Q2 2016, the nationwide residential real estate price index (REPI) fell by 1.1%, following a decline of 0.3% a year earlier, according to Morocco's central bankBank Al-Maghrib.
Things were very different during the previous decade, when the domestically-owned property market surged on the back of high-GDP growth years such as 2001 (GDP growth of 7.6%), 2003 (6.3%), 2006 (7.8%), 2008 (5.6%) and 2011 (5%).
Morocco's 2016 economic growth was the lowest in 17 years, at 1.8%, sharply down from a GDP growth rate of 4.5% in 2015, according to the International Monetary Fund (IMF). But the economy is expected to accelerate in the next two years, with projected GDP growth rates of 4.8% this year and 4.2% in 2018.
- House prices dropped 2.4% y-o-y in Q2 2016, worse than the annual decline of 0.2% seen in Q2 2015. Quarter-on-quarter, house prices fell by 1.1% in Q2 2016.
- Apartment prices dropped 1% y-o-y in Q2 2016, worse than the annual decline of 0.5% seen in a year earlier. Quarter-on-quarter, apartment prices fell by 1.2% in Q2 2016.
- Villa prices increased 2.7% y-o-y in Q2 2016, an improvement from an annual rise of 0.8% seen in Q2 2015. Quarter-on-quarter, apartment prices increased 0.7% in Q2 2016.
There were wide local variations:
- In Rabat, Morocco's capital city and political hub, property prices rose by 2% y-o-y in Q2 2016. In a quarterly basis, property prices increased 1% in Q2 2016.
- In Tangier, the country's most important port city on the Strait of Gibraltar, property prices increased 1.4% in Q2 2016 from a year earlier and by 1% from the previous quarter.
- In Casablanca, Morocco's biggest city and the economic capital, the average property price fell by 3.8% in Q2 2016 from a year earlier and by 2.3% from the previous quarter.
- In Marrakesh, home to mosques, palaces, and gardens, property prices fell 5.7% in Q2 2016 from a year earlier but actually increased 1.6% from the previous quarter.
- In Fez, Morocco's second largest city, property prices dropped slightly by 0.2% in Q2 2016 from a year earlier and by 1% from the previous quarter.
Residential transactions were down 1.2% y-o-y in Q2 2016, according to Bank Al-Maghrib. The number of houses sold fell by 5.5% y-o-y, apartment sales fell 0.8%,while villa sales dropped 4.7%. Urban land transactions also fell 3.2% y-o-y in Q2 2016
Morocco: rental yields range from around 3.7% to 7.0%.
Gross rental yields in Morocco can be good, so long as you are renting out an apartment. But yields on houses are really low.
Yields in Marrakech are a little lower than in Casablanca, reflecting the fact that rents are not dissimilar but the price of properties is somewhat less in Marrakech.
Round trip transaction costs are high in Morocco. See our Residential property transaction costs analysis for Morocco and Residential property transaction costs in Morocco compared to the continent.
Moroccan income tax rates
rise progressively to 25.2%.
Rental Income: Net rental income is obtained by taking 40% off the gross rental income. The tax rate rapidly progresses from 0% to 38%, so that the top rate of tax is actually 24% of gross income.
Capital Gains: Profits on the sale of property are taxable at 20% of any profit, but with a minimum tax of 3% of the sale price.
Inheritance: There are no inheritance taxes in Morocco.
Residents: Residents are subject to progressive income tax rates on their worldwide income.
Total transaction costs are low in Morocco
Round trip transactions costs, i.e. the total cost of buying and selling a property, are around 12.50% to 17%. The buyer pays all the transaction costs. Additional expenses are involved in buying non-titled property.
Buyers need to be very careful when considering purchasing property in Morocco. In the main, it is not advisable to purchase any land that is not titled (as "Muhafida"). There are at least 3 types of land titles, and most of them are very doubtful. There are also in Morocco many nice-seeming but dishonest advisors. Clear titles can be very difficult to find, at least at a fair price.
The law in Morocco is pro-landlord
Rent: The rent can be freely agreed between the parties. The landlord can also ask for a guarantor to be named, who is legally obliged to pay the landlord for any debts owed by the tenant.
Sharp economic slowdown; falling budget deficitMorocco has not experienced a single period of economic contraction during the entire period since 1997, when GDP fell 2.2%. Morocco had notably strong growth in 2001 (7.6%), 2003 (6.3%), 2006 (7.8%), 2008 (5.6%) and 2011 (5%).
This can be attributed to King Mohammed VI's social, democratic and economic reforms aimed at improving the lives of Moroccans and strengthen the Kingdom’s institutions. Some of his notable programs have included poverty reduction, improvement of foreign relations and strengthening the parliament.
However, economic growth has slowed in recent years, mainly due to the debt crisis in the European Union, Morocco’s major tourism and trading partner. The Moroccan economy expanded by just 2.4% in 2014, after GDP growth of 4.4% in 2013 and 2.7% in 2012, according to the International Monetary Fund (IMF). However the economy grew strongly in 2015, with GDP growth of 4.5%.
Morocco’s 2016 economic growth was the lowest in 17 years, at 1.8%, sharply down from a GDP growth rate of 4.5% in 2015, according to the International Monetary Fund (IMF). But the economy is expected to accelerate in the next two years, with projected GDP growth rates of 4.8% this year and 4.2% in 2018.
Unemployment remains high, causing complaints by Morocco’s Arab Spring protesters. However, Morocco’s sustained economic growth throughout the years has led to a substantial unemployment decline, from 15.4% in 1997 to 8.9% in 2011. In 2015, Morocco’s unemployment stood at 9.8% from 9.9% in 2014 and 9.2% in 2013, and 9% in 2012, according to the IMF.However unemployment has since risen to again 10.2% in 2016, according to the IMF.
Despite positive achievements under King Mohammed VI, corruption remains very prevalent, reaching the palace itself. Royal involvement in business is a major topic in Morocco, unsurprisingly as the King is the Kingdom’s leading businessman and banker, and the royal family has one of the world’s largest fortunes. Decisions on big investments in the Kingdom are taken by only three people: the King, his secretary MounirMajidi, and the monarch’s close friend, adviser and former classmate Fouad Ali Himma. Corruption originating in the royal palace especially affects the housing sector, as Wikileaks documents released in 2010 showed.
Inflation management has greatly improved, with inflation averaging 1.6% during 1999 - 2016, based on figures from the IMF. In 2017, inflation is expected to slow to just 1%.
Like other Middle Eastern countries, Morocco has experienced social and political unrest. But unlike other countries, Morocco’s political achievements, as well as the authorities’ responsiveness, have reduced the scale of the unrest. King Mohammed VI introduced a series of constitutional reforms aiming to improve democracy in the country:
- A number of new civil rights including social equality for women, and constitutional guarantees of freedom of expression, etc.;
- Additional powers to the office of the prime minister, replacing the king as head of government and president of the council of government, as well as the authority to appoint government officials and to dissolve the parliament. The King is also obliged to appoint the prime minister from the winning party in the parliamentary elections;
- The parliament now has the power to grant amnesty;
- Independence of the judiciary system from executive and legislative branches;
- The King, however, remains commander-in-chief, holding complete control over the armed forces. He is also the chair of the Council of Ministers and the Supreme Security Council, and the highest religious authority in the country;
- Berber was made an official language in Morocco, alongside Arabic;
- The Arab-Hassani Language and Morocco’s other linguistic components are preserved as part of the national heritage.
To dampen popular protests at the time of the Arab spring, the King went on a spending spree in 2011, raising public sector wages and pensions, as well as subsidies. Expenditures increased to 29.9% of GDP, from 27.4% in 2010, according to the African Development Bank. The budget deficit widened to 6.7% of GDP in 2011, from 4.4% in 2010 - a dramatic contrast to the surpluses in 2007 (0.6% of GDP) and 2008 (0.4% of GDP). The budget deficit rose further to 7.4% of GDP in 2012.
Morocco’s budget deficit was reined in to about 3.5% of GDP in 2016, down from 4.3% of GDP in 2015, 5% of GDP in 2014, and 5.5% of GDP in 2013 - its lowest level since before the Arab uprisings that toppled other leaders in the region. This year, the budget deficit is projected to fall further to 3.1% of GDP, as planned in the 2017 draft budget.
To counter the effects of EU’s slowdown and oil price swings to their economy, the Moroccan government sought help from the IMF, and was granted a loan worth US$6.2 billion. In exchange, the government will reform the pension system.